Surging Gas Prices Have Drivers Fuming

Mar 15, 2012
Originally published on March 15, 2012 2:05 pm

Gasoline prices have risen about 50 cents a gallon since January. The national average for regular gas stands at just above $3.80 per gallon.

Pity the drivers on the West Coast. Prices there have been much higher. At a Chevron station in Culver City, Calif., the price on Tuesday was $4.45 a gallon.

"I do building maintenance," Ursula Matthews said as she filled her tank. "I do a lot of driving from place to place. It's hurting me. I cannot raise the prices [of my services] with the economy what it is."

Lindon Dawson, another customer at the same station, wondered, "How long is this going to last? Because this is kind of making me broke."

There's good news for Dawson and his wallet. It looks like gas prices on the West Coast are headed down.

"Wholesale prices for gasoline are trading about 50 cents a gallon lower than they were as recently as Feb. 24," says Tom Kloza, chief oil analyst at the Oil Price Information Service in Wall, N.J.

That means retail prices are likely to head down soon too, at least on the West Coast. For the U.S. overall, the federal Energy Information Administration projects that regular gas prices will continue to rise to nearly $4 a gallon this summer, then decline at the end of the summer driving season.

Some of the biggest price increases in coming months will very likely be in the Rocky Mountain region, where prices have been lower than average. Currently, regular gas in Denver is selling for about $3.45 per gallon — a dollar less than in Los Angeles. Kloza says that's because refineries in the Rockies have access to cheap crude piped in from Canada and North Dakota.

'Who's In Control?'

Donald Keys of Denver seems suspicious of the frequent price changes lately. "I seen it the other night, 14 cents, overnight," he says. "I mean, who's in control of that?"

Ultimately, the station owner determines the price, based on the local market. But before that there's the wholesaler, the refiner and the company that pulled the oil out of the ground in the first place. The price of crude is about 75 percent of what you pay for gas at the pump.

Those oil prices are determined well east of Denver, in New York. The electronic trading market that sets world oil prices is huge — much bigger than the oil market itself — and it's complex. That leads some to question the role of speculators.

Some of the recent run-up in oil prices was due to political tensions in the Middle East, involving Iran. When traders are worried the supply might be cut, they start bidding prices up.

"When they're raising our gas prices off pure speculation, that's getting a little out of hand," says Denver resident Scott Schmidtline.

The U.S. Commodity Futures Trading Commission is developing new rules for traders. But oil analyst Kloza says don't expect any revolutionary changes there. Beyond that, he says there are larger issues at play in the world.

"The major reason that oil prices are higher here in the last 15 months or so, is that tens of millions of people who were impoverished or who lived truly with just a sustenance-sort-of-based economy are moving into the lower reaches of the middle class," Kloza says.

While the U.S., Europe and Japan are using less fuel than in the past, much of the rest of the world is using more for transportation, agriculture and industry. That increasing demand worldwide is what's going to push up prices at your local pump for years to come.

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STEVE INSKEEP, HOST:

Gasoline prices are up almost 80 cents per gallon since the start of the year. [POST-BROADCAST CORRECTION: Gas prices have increased 53 cents per gallon.] Republican presidential candidates have noticed, and are promising to bring prices down. The White House has also noticed, and the president talks about energy this morning in Maryland. Drivers are just asking when prices will come back down. NPR's Jeff Brady reports.

JEFF BRADY, BYLINE: At a Chevron station in Culver City, California, the price is $4.45 a gallon. That's near the top when you look at prices across the country, and Ursula Matthews is feeling the pain.

URSULA MATTHEWS: I do building maintenance and I get paid by - you know, I do a lot of driving from place to place, and it's hurting me. And I cannot raise the prices with the economy what it is, so it's kind of hard.

BRADY: At the same station, Lindon Dawson is filling up his car and has a question that's on a lot of minds.

LINDON DAWSON: I actually want to know, how long is this going to last, 'cause this is kind of making me broke, so...

BRADY: Good news for Dawson and his wallet: Tom Kloza, with the Oil Price Information Service, says it looks like gas prices on the West Coast are headed down.

TOM KLOZA: Wholesale prices for gasoline are trading about 50 cents a gallon lower. I'm going to repeat that - lower - than they were as recently as February 24.

BRADY: That means retail prices likely will head down soon, too, on the West Coast. Across the country, the Department of Energy projects gradually increasing prices through summer. In the Rockies, though, expect prices to rise faster.

Gas in Denver now is a relative bargain at $3.45 a gallon - a dollar less than Los Angeles. That's because refineries in the Rockies have access to cheap crude, piped in from Canada and North Dakota. Donald Keys of Denver seems suspicious of the frequent price hikes lately.

DONALD KEYS: The fluctuation in it - how it just goes up whenever they want to, you know, overnight - 10 cents, 11 cents, 12 cents. I seen it the other night - 14 cents overnight. So, I mean, who's in control of that?

BRADY: Ultimately, the station owner determines the price based on the local market. But before that there's the wholesaler, the refiner, and the company that pulled the oil out of the ground. The price of crude is about 75 percent of what you pay at the pump.

Oil prices are determined well east of Denver, in New York City. The electronic trading market that sets world prices is huge and complex. That leads some to question the role of speculators. Scott Schmidtline is walking his two, panting dogs in downtown Denver.

SCOTT SCHMIDTLINE: It would be great to see them maybe put a leash on Wall Street or something, you know, a little bit. I mean, I know that the free market, whatever. But, I mean, when they're speculating, when they're raising our gas prices off of pure speculation, that's getting a little out of hand.

BRADY: The U.S. Commodity Futures Trading Commission is developing new rules for traders. But oil analyst Tom Kloza says don't expect any revolutionary changes there. Some of the recent run-up in oil prices is due to political tensions in the Middle East, involving Iran. But even bigger than that? Kloza says increasing demand in the developing world has led to higher prices.

KLOZA: Tens of billions of people who were impoverished, or who lived truly with just a sustenance, sort of, based economy are moving into the lower reaches of the middle class overseas.

BRADY: Kloza says they're using more fuel for transportation, agriculture and industry. That increasing demand worldwide is what's going to push up prices at your local pump for years to come.

Jeff Brady, NPR News. Transcript provided by NPR, Copyright NPR.